How to determine trade in value for business vehicle

[timothy1]

What value do I use when I owe on the first vehicle? Example, I get $5000 for the trade in, but owe $3500 on the loan. Do I use $1500 as the value as that's what I "earned" from the deal? Thanks!

[ReginaM]

There is no taxable event on the trade-in.  The cost basis of the new car is reduced for the depreciation used on the old car. To do that, there is a part of the standard mileage rate that is considered the depreciation. Multiply that rate times the business miles each year to arrive at the depreciation used as a deduction on the tax returns.  Then take that total and reduce the cost basis of the new are (first by the trade-in then by the depreciation).

Rate of Depreciation Allowed in Standard Mileage Rate

Year(s) Depreciation   Rate per Mile  

• 2019 $0.26  
• 2018 $0.25  
• 2017 $0.25  
• 2015–2016 $0.24  
• 2014  $0.22  
• 2012–2013  $0.23

For more information, please see IRS Publication 535

[Anonymous]

there are no more like kind exchnages for other than real estate.  when you trade in a vehicle it is treated as a sale.    

first the cost of your vehicle has to be split between business and personal use based on business miles to total miles  the trade in value which is the sales price is split the same way.

reduce the businss portion of the vehicle by the depreciation.

business proceeds less business basis = business gain or loss.  any loss on personal portion is not deductible. 

loan amount does not enter into the computation.